Chapter 11: Lucidiom financially sub-par

The customer base and licence for IP assets of US photo services software and kiosk specialist Lucidiom has been acquired by a ‘debt-free’ new entity operating under the Photo Finale brand. At the same time some unsecured creditors of Lucidiom petitioned for the company to be placed in Chapter 7 (involuntary liquidation) bankruptcy, which has in turn led to a Chapter 11 (voluntary administration) bankruptcy process, according to a Photo Finale director.

Where did it go? Former British Ryder Cup captain Sir Nick Faldo is pursuing Lucidiom for over $1 million. (Source Wiki Commons)

Adding a touch of celebrity to the story, one of Lucidiom’s creditors, and a plaintiff in the Chapter 7 filing, is former champion British golfer, Sir Nick Faldo.

Unsecured creditors Nick Faldo, Athole Still and a company called Montclare Holdings claimed US$970,000, US$351,00 and US$2.8 million respectively for ‘Breach of Stock Subscription’ in their Chapter 7 filing.

According to Lucidiom, the Chapter 7 filing has now moved to a Chapter 11 process:

‘We can confirm for you…that Lucidiom Inc has passed into a Chapter 11 process under US law, and not a Chapter 7 Involuntary Petition,’ said Michael A. Clayton-Gale, a director of Lucidiom.

‘The Chapter 7 was overturned on presentation in due process as required under the deadlines for response by the company directors.

‘Lucidiom Inc has had a formal process in place since last year to support Photo Finale Inc, which now markets, distributes, and supports the old Lucidiom customer base as well as developing the software to new levels,’ he said.

Chapter 7 bankruptcy proceedings are usually instigated by the person or company in financial difficulty, to give them some protection from the demands of their creditors. It leads directly and usually rapidly to liquidation, with no option for financial recovery of the business. It’s less usual for a creditor to force a Chapter 7 liquidation on a debtor.

Chapter 11 is a form of bankruptcy that involves a reorganisation of a debtor’s business affairs and assets. It is generally filed by corporations which require time to restructure their debts. When successful, it can give the debtor a fresh start, subject to fulfillment of its obligations under its plan of reorganisation.

At this early stage in the Chapter 11 process the full list of Lucidiom’s creditors is not available. (A quick search through US court documents for reference to the transition from Chapter 7 to Chapter 11 has proven unsuccessful.)

Steve Giordano Snr.

In late 2013 Lucidiom founder Steve Giordano Snr and Lucidiom were also defendants in a civil action by Cayman Island-based Trafalgar Capital Advisors for recovery of just over US$800,000 (plus legal costs) in a loan default claim.

On the other side of the ledger, Lucidiom was listed as a a creditor in the bankruptcies of both Ritz Camera and Calumet.

Nick Faldo has been associated with Lucidiom since at least 2006, when as a client of UK-based equity firm KRM Financial Management (whose client base is sprinkled with sports and media personalities), he was involved in a US$6 million investment in Lucidiom Europe. He also set up a (short-lived) business, Intrix Worldwide, with KRM executive Samir Khan to assist with the roll out of Lucidiom kiosks and software in the European market.

According to UK company register website, DueDil, Samir Khan and Stephen Giordano Snr also shared director’s duties in the privately-owned Lucidiom UK Limited, which was founded by the two businessmen back in 2003. (Mr Khan retired as a director in November last year.) Lucidiom UK has a book value of approximately -$1.25 million and no cash assets, according to DueDil. It appears Lucidiom Europe is now the active Lucidiom entity in the European market.

The Chapter 7 filing was made on August 22. An emailed letter from Lucidiom’s CEO Steve Giordano Jnr informing Lucidiom customers of the switch to Photo Finale was sent out on September 11, with no reference made to Lucidiom’s financial difficulties. A pres release issued yesterday by Photo Finale also made no reference to the court proceedings.

Photo Finale has also moved from Vienna, Virginia, former head office of Lucidiom, to new premises in Tyson’s Corner, Virginia.

Mr Giordano Jnr wrote to customers: ‘In September 2013, amidst a radically-changing photofinishing market, it became clear that in order to meet the challenges we needed to change the way we developed software, hired staff, and basically ran the company. After much deliberation, a select group of Lucidiom staff decided to license the Lucidiom code and take a major step toward modernization. Photo Finale was formed. Under a strong, perpetual agreement, we licensed all of Lucidiom’s software, acquired the customer contracts, and took that leap at modernization of support and development.’

‘…Photo Finale Inc. has been supporting and operating all the Lucidiom customers as transferred, with no outward change or interruption to service, for the past year. For customers and retailers it has been business as usual and all license agreements remain in place.’

In the press release issued yesterday (September 25) he added: ‘Photo Finale Inc. is an employee-owned, debt-free company with a strong, smart team who will continue to support all our customers and to develop great new software. I see a bright future for our industry; more pictures available for printing than ever before gives us all great opportunities.’

There are dozens rather than hundreds of Australian and New Zealand Lucidiom customers, divided between Photokiosks.com.au and Photo Direct. Lucidiom has a much higher profile in the US, and along with Dakis was a major participant in the 2014 IPI conference in Las Vegas.

Photo Direct also represents LifePics in Australia, and recently selected Lifepics software to bundle with its portfolio of printing options, from DNP dye sub printers through to the Epson Surelab 3000 inkjet drylab land and wide format printing options.

(Photo Counter has been seeking specific input from Photo Finale executives for this article all this week, but has not been successful at time of publication. We understand a press release addressing the bankruptcy issue will be issued in the next day or so.)

Is this even legal? It seems these guys have walked out on one side of the ledger. They’ve skimmed every major asset (source code, clients, contracts and staff) and abandoned 100% of the debt.

Which Director of Lucidiom authorized this “deal” and how is this in the best interest of its investors, shareholders and creditors for whom it is their legal and fiduciary responsibility to protect? Has the trustee in bankruptcy already signed off on what appears to be obvious fraud? This seems both illegal and unethical.

I expect to soon read about creditors and investors suing the entities and principals and questioning the legality of any such transactions. I’m surprised these guys aren’t in jail.

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